China in Africa

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China accelerates investments in Africa

Euromonitor International
17 October 2008

Chinese loans and investments in Africa have expanded since 2000, as has Sino-African trade. China's involvement and trade in Africa is causing some concerns in Africa over job losses and the potential undermining of good governance, yet it is clear that African consumers and the business environment benefit from Chinese investments in infrastructure.

Key points


China's demand for raw materials and energy has been the driving force behind its investments in Africa. China's investments are focused on the extracting industries of crude oil, iron and other metals, yet it is also investing in a wide range of enterprises, from the financial sector in South Africa to a hydroelectric plant in Zambia;



China's foreign direct investment (FDI) outflows to Africa grew seven-fold between 2002 and 2006 from US$74.8 million to US$519 million. China has also provided generous aid packages and loans;



China's involvement in Africa still lags behind that of the developed world. For example, Chinese aid to Africa was estimated in 2006 at between US$0.5 billion to US$2.0 billion, compared with US$28.0 billion from countries of the OECD;



China's willingness to provide aid, loans and investments with “no strings attached” could harm the business environment in Africa as it could encourage corruption and undermine efforts to promote good governance and accountability. However, China's investments in Africa's infrastructure will improve the business environment, facilitating easier transport of goods and providing reliable power;



Chinese investments in Africa encourage technology and knowledge transfer to local economies. The actual benefit to African companies varies between countries and projects, as in some cases Chinese firms import all materials, technology and skilled staff from China, while in other cases local firms are subcontracted and gain experience;



African consumers benefit from China's investment in infrastructure, as well as from low-cost imported goods from China. However, Chinese competition has harmed African manufacturers and the influx of Chinese workers is putting in question the benefits of Chinese investments to lowering unemployment in Africa.

Background
China's involvement in Africa is part of its growing investments overseas: •

China's economy has grown annually on average by 10.4% in real terms between 2002 and 2007 driven by investments, exports and domestic consumption. This rapid growth prompts China to look overseas for new sources for raw materials and for new markets for its products;



China has long been a destination for FDI inflows, yet since 2000 it has emerged as an important source of FDI outflows. Foreign investments abroad grew from around US$1 billion in 2000 to US$22.5 billion in 2007. Chinese investments abroad come mainly from state-owned enterprises and investment funds.

China's involvement in Africa in context
Chinese investment in Africa is a diversification of its traditional interests: •

The main destinations for Chinese FDI outflows have been Asia and Latin America accounting for 43.5% and 48.0% of investments in 2006, the latest year available. Investments in Africa amounted to 2.9% of total Chinese investments;

Chart 1

China’s Foreign Direct Investments outflows by region: 2003-2006

US$ million

Source:

National statistics



Africa has long suffered from a low level of foreign investments. Despite having 14.5% of the world population in 2007, Africa attracted only 2.9% of global FDI inflows or US$52,982 million, a considerable improvement from US$29,459 million in 2005;



China's FDI outflows to Africa accounted for only 1.1% of foreign investments in Africa in 2006. This seems modest when compared to the EU accounting for 44.7% of inflows. However, China's investments are focused on a small number of countries,...
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